Via Teleconference
11:05 A.M. EDT
MR. FRIEDLANDER: Hey, everyone. This is Rob from the OMB Communications team. Thanks so much for joining us. This will be an on-the-record call about the President’s Fiscal Year 2022 Budget.
We will be joined by Shalanda Young, Acting Director of OMB; as well as Cecilia Rouse, Chair of the Council of Economic Advisers. They’ll each make some brief comments at the top, and then we’ll have time to take some questions at the end.
As a reminder, this call will be on-the-record and embargoed until 1:30 p.m. Eastern Time today, along with the materials you’ve received also under embargo until 1:30 p.m. today.
And with that, I will turn it over to Acting Director Young.
ACTING DIRECTOR YOUNG: Well, thanks, Rob. And thanks to all of you for joining. I want to start with a very quick overview of this year’s budget process, which, many of you know, looks a little different in a transition year.
Back in April, we released the topline information for the President’s discretionary request for Fiscal Year 2022, which provided Congress with guidance on his funding priorities to help inform the appropriations process.
That discretionary request recommended that Congress reinvest robustly in areas like public health, education, basic science, and clean energy. The country had been weakened by a decade of disinvestment in these areas, which were squeezed under restrictive budget caps. The discretionary request issued a clear call for Congress to reinvest in these areas, restoring nondefense appropriations to its historical average share of the economy.
Additionally, the President also unveiled his American Jobs Plan and American Families Plan. Together, these two will be transformational: strengthening our economy, boosting American competitiveness, and delivering shared prosperity and economic security.
Today, we’re releasing a budget that puts these pieces together and does exactly what the President told the country he would do: grow the economy, create jobs, and do so responsibly by requiring the wealthiest Americans and big corporations to pay their fair share.
Already, we know that the President’s economic plan is working. New unemployment claims are down 60 percent since he took office, the economy created more new jobs in the President’s first 100 days than the first 100 days of any President on record, and growth is stronger than anyone expected. And this budget outlines the next steps in that plan.
The budget investments — the budget starts with the American Jobs Plan — a once-in-a-generation investment in America that will put millions of people to work rebuilding our country — fixing highways, rebuilding bridges, and upgrading our transit systems; replacing all lead pipes and service lines in our drinking water systems; investing in the infrastructure of our care economy and creating new and better jobs for caregiving workers; and much, much more.
The budget also includes the President’s American Families Plan — a historic investment in the middle class and in the pathways to the middle class, including education, healthcare, and childcare.
And the budget also incorporates the President’s discretionary request. For example, it calls for $6.5 billion to launch ARPA-H — a historic 20-billion-dollar increase for Title I schools to advance educational opportunity for all students; the largest budget authority increase at the CDC in nearly two decades to help rebuild its capacity to detect, prepare for, and respond to emerging global threats; and $36 billion in discretionary climate investments, just to name a few.
And finally, the budget reiterates the President’s strong call to Congress during his joint address to move on healthcare — reducing the costs of prescription drug, and expanding and improving health coverage.
Put together, this budget is an agenda for robust, durable economic growth and broadly shared prosperity. It will deliver a strong economy now and for decades into the future. And it is in an investment in Americans all across the country who power our economy.
The budget makes these investments in a way that’s responsive to both the near- and medium-term economic landscape, as well as the long-term challenges our country faces.
In the near-term, the decades-long, global trend of declining interest rates, even as publicly held debt has increased, gives us the fiscal space to make necessary upfront investments.
Under the budget policies, the real cost of federal debt payments will remain below the historical average through the coming decade, even as the budget assumes that interest rates will rise from their current lows, consistent with private-sector forecasts. Low real debt service payments show that the cost of these upfront investments is not burdening the economy. To the contrast, failing to make these investments at a time of such low interest costs would be an historic missed opportunity that would leave future generations worse off.
This budget does not make that mistake, and it invests — its investments will pay dividends for generations to come.
Over the long run, when we face larger fiscal challenges and more uncertainty about interest rates, the budget will reduce the deficit and improve our nation’s finances.
That’s because its frontloaded investments are more than paid for through permanent tax reforms that will ensure corporations and the wealthiest Americans pay their fair share.
You’ll see, in summary tables that all of you should have, that the budget policies reduce annual deficits beginning in 2030 and by increasing amounts thereafter.
It also shows that the budget policies reduce deficits in every year beyond the 10-year window and by over $2 trillion in the subsequent decade.
And it also shows that the American Jobs Plan and the American Families Plan are fully offset within 15 years.
So, as a whole, the budget will improve our nation’s long-term finances while making the growth-enhancing investments that we need right now.
With that, let me turn it over to Chairwoman Rouse to talk about the budget’s economic assumptions and the economic outlook under the budget’s policies.
CHAIR ROUSE: Thank you. And thank you for you time today. I want to use this opportunity to cover two important elements of the budget: the economic motivation and the economic forecast behind its policies.
As Acting Director Young just mentioned, this is a very important and forward-looking budget. The policies proposed are premised on the idea that, to move forward as a country, we need to invest in innovation. And the public sector is critical to building a robust and inclusive economy.
When the government invests in infrastructure and families, it acts a partner, not a rival, to private business. When it underinvests in these public goods, it diminishes the private sector’s productivity and its ability to grow, hire, and invest.
Moreover, when the public sector doesn’t fulfill its side of the partnership with the private sector, the harm is not equally felt. Low-income neighborhoods and communities of color bear the brunt of the harm.
A robust — a robust body of economic evidence has found that investments like these in the budget pay off for years to come in the form of stronger economic growth, less reliance on transfer benefits, and greater tax revenue.
The President has proposed a comprehensive tax plan to offset these investments by asking corporations and wealthy individuals to shoulder their fair share of the tax burden.
Most importantly, it is imperative that this country makes up for decades of underinvestment in important parts of our country, which, as I noted earlier, will pay off in the long run.
Typically, when policies like this are proposed, they are baked into the budget forecast. And typically, a three-months’ difference between when a forecast is done and when the budget is proposed is not really a big deal.
But I don’t need to tell you that this year was unlike any other in modern history. When we did the forecast in early February, the world looked much different than it does today.
At that point, it was unclear how we could successfully stand up a national vaccination program, how fast we could get those shots into arms, how effective the shots would be, and how much vaccinating a nation would free up consumers to spend and businesses to reopen.
In addition, the American Jobs Plan and the American Families Plan — the cornerstone of the budget — were in the early stages of development.
That February forecast projected real GDP growth at 5.2 percent in 2021, and 3.2 percent in 2022.
We began the year with a 6.3 percent unemployment rate and expected it to fall to 5.5 percent by the end of 2021, and 4.1 percent by the end of 2022.
We also expected short-term interest rates to rise slowly as the economy approached full employment and inflation to stabilize around 2 percent.
There are two important reasons why our current economic reality looks different from our February forecast. First, the economic reality on the ground, as summer looms, is very different than last winter. Recovery and real GDP has outperformed our expectations thus far. More than half of adults in the United States have been fully vaccinated, accelerating a full reopening. The consensus forecast for real GDP growth during 2021 has climbed from 5.0 to 7.0 percent.
Aside from GDP, two other components of the forecast that have been revised up as well: the consensus view about 10-year yield and the expectation for 2021 inflation.
Second, as I noted earlier, the forecast does not fully reflect the policies proposed in the budget. This is a solid —
a budget that reflects President Biden’s vision for investing in people and society, and ensures that the economy grows and that everyone shares in the prosperity. And it understands that the public sector is a key component in moving us forward.
Thank you for your time.
MR. FRIEDLANDER: Great, thanks very much. Moderator, we’ll be ready to take some questions now.
Q Yes, hi. This is Asma with National Public Radio. I just wanted to better understand, you know, how you’re addressing some of the concerns that have been risen, particularly from fiscal hawks, that even though interest rates are low right now and these are investments you need to do, that if you don’t sort of tackle the gaping structural deficit problem that the country is in, it will be enormously difficult to deal with the debt problem over the long term.
ACTING DIRECTOR YOUNG: Thank you. Thank you for that question. You know, that is certainly one way to look at the budget. There are also other metrics of how you look at this with sustainability. And we certainly believe that the President’s budget improves the long-term fiscal outlook because his policies are more than paid for over the long run.
So this President is putting forth a historic, staggering agenda that changes the long-term view of how this country invests in its infrastructure and brings its competitiveness with those like China back to where we should be — which is first in the world — while ensuring that he not only offsets his policies, but improves the deficit picture, starting in 2030, and by cutting deficits over — by over $2 trillion in the 10 years after that.
That is a sharp departure from unpaid tax cuts under the prior administration that seriously wor- — worsened our long-term fiscal problems.
But for the near term and the medium term, we believe the most important test of our fiscal health is real interest payments on the debt. That’s what tells us whether debt is burdening our economy and crowding out other investments.
This budget takes advantage of the fiscal space created by historically low interest rates to make urgently needed investments that will contribute to growth and shared prosperity. Under the budget’s policies, the real cost of federal debt payments will remain below the historical average through the coming decades, showing that the cost of these upfront investments is not burdening the economy.
Q Wall Street Journal. This is a question, I guess, for Chairwoman Rouse on the economic assumptions. So you mentioned the consensus forecast for GDP 10-year yields and inflation — how those have shifted. Could you tell us — and maybe I just misunderstood — how the White House forecasts have changed? Like what are you actually expecting this year and maybe next year for real GDP rates and inflation at this point?
CHAIR ROUSE: So, you know, we did this like a forecast, which is led by the CEA, but very much in conjunction with OMB and the Treasury Department. And we developed that forecast in early February.
But, you know, just like you are, we’re watching the economy, and we can see that GDP growth in the first quarter came in at 6.4 percent. You know, we have seen unemployment come down. You know, we just got to PCE numbers on inflation, which shows that people are spending and the economy is opening up.
So, you know, if we were revising today, we would certainly be reflecting these new economic realities into our forecasts. But we don’t update the forecast, you know, mid-cycle in this way because we need to develop the budget in time for agencies to develop their own budgets. And if we were to have revised the budget, it would have delayed this budget roll- — if we revised our forecast that would have delayed this budget rollout even further, which we didn’t think would be such a wise thing to do.
Q Hi, thanks. Yeah, Niv Elis from The Hill. So I have two questions. One is, it looks like the net interest that’s going to be paid rises to $914 billion by the end of the decade, which is 40 percent more than the primary deficit. So with net interest costs getting that high, can you sort of explain how that counts as a responsible fiscal course when so much is just going to pay off the debt?
The other question is also about GDP. You talked about how the — this forecast didn’t incorporate the effects of the Jobs Plan and the Families Plan. Do you have forecasts as to how those would increase GDP if they are enacted?
ACTING DIRECTOR YOUNG: So, I’ll start with the interest-rate question and let the Chairwoman jump in on GDP. But, as you point out, our budget does build in assumptions about a future rise in interest rates. That’s the responsible thing to do, and that’s exactly what you see.
Even with assumed interest — increase in interest rates, real interest payments on the federal debt, which are a key test of fiscal health, remain low by historical standards throughout the coming decade, showing that this budget puts the nation on sound fiscal course for the near term.
Like CBO and market forecasters, we don’t assume that interest rates go all the way back to the last seen — level seen several decades ago. That’s because the decline in interest rates is a global persistent phenomenon; it has not been temporary or localized.
And that being said, things could change. And we recognize that the long-run outlook is more uncertain. That’s one of the reasons why the President has put forward proposals to pay for all of his policies and, in fact, reduces deficits over time by reforming our tax system so that corporations and the very wealthy pay their fair share.
CHAIR ROUSE: Terrific. And so, this is Cecilia Rouse, and I’ll take the second question about the impacts of the AJP and the AFP.
So just — just as a reminder, when we made the budget forecast, it was early February. And, nonetheless, we do assume that at 10 years out — in 2031 — that real GDP growth would be about — would be at 10 — at 2.0 percent. So when we made this forecast, we did include some — we did expect some positive growth effects from some of the investments that we knew we wanted to be able to make, but we hadn’t fully developed those programs at that time.
So, you know, in terms of the protect — projected impact of the AJP and the AFP on the economy, I will refer you to Mark Zandi’s forecast. And he projects that these two programs — by 2030, that we will have GDP at 2.3 percent and unemployment will have fallen under 3.8 percent.
Q Hi, this is Benjy Sarlin with NBC News. I just want to ask about a pair of healthcare reforms that seem to be mentioned in the factsheet: the drug reform and the public option. I was wondering if you could explain to me exactly where they fit into this budget. Is there a specific proposal that is being incorporated into assumption?
Or is this more just a general statement that the White House would like Congress to eventually pass something on this without further details? And if so, why is there not a more detailed incorporation into this budget?
ACTING DIRECTOR YOUNG: Hey, thanks for that. We — we love to talk about healthcare policy, so thanks for giving us the opportunity to do that.
One, I do want to make sure we note, in the Families Plan — so a part of this budget — the President does have a robust healthcare proposal. It makes permanent — it will make permanent the premium tax credit improvements that, as we all know, helped millions of people gain coverage and reduce premiums for millions more. This budget also invests $400 billion in improving home- and community-based services for older people and people with disabilities.
What the budget does — I think you’re referring to — is also calls on Congress to act this year — the President is very clear he would like to see action this year — to reduce prescription drug costs; strengthen ACA, Medicaid, and Medicare coverage; and create additional public coverage options.
We know there are proposals on the Hill being introduced, and we believe that it is more productive to work collaboratively with Congress to develop and build consensus around the specific policies that achieve his broad goals.
Q Oh, hey. Ben White at Politico. Thanks for doing this. I just want to go back to the growth projections for a second. I mean, obviously you’ve talked about how this was done in February pre-AJP and AFP. Do we just disregard these projections as too small? Because they’re relatively tepid growth rates for the kind of investments you’re talking about making. How should we think about that? Should we just discount this as, you know, old numbers? And should we expect much faster growth going forward? Or how should we think about it?
CHAIR ROUSE: Well, a great — good question. So again, our budget does assume that real GDP growth is at 2.0 percent 10 years out — so that’s in 2031. So we want to put that 2.0 long-term forecast in perspective. The Congressional Budget Office’s projection, which was also released in February, used then-current law assumptions. So it didn’t include the ARP — the American Rescue Plan; the AJP; or the AFP, and it reaches GDP of 1.6 percent in 2031. The median Federal Reserve long-term growth forecast back in mid-March was 1.8 percent.
So I want to just highlight this seemingly small difference in — differences in real GDP growth can end up having enormous effects on the output and income that our economy generates over time.
So, for example, let’s take a difference between the CBO’s 2031 real GDP growth projection, 1.6 percent, and our 2 percent 2031 forecast. So that’s a difference of 0.4 percentage points each year in the long term. That 0.4 percentage point difference in real growth would translate into the U.S. economy cumulatively producing $4.8 trillion more over a decade in inflation-adjusted 2019 dollars. So that’s roughly $1 trillion more than the annual GDP of Germany. That just shy of the annual GDP of Japan.
Put another way, that extra output from an extra 0.4 percentage points of real growth each year, summed over a decade, would be the equivalent of $36,000 per household, again in 2019 dollars. So, differences of a mere tenths of a percentage points to economic growth can gradually add up to be the size of whole nations’ economies.
Q Hi, there, Jim Tankersley with the New York Times. Thanks so much for doing this. Racial equity has been a big focus of the President, but there is not a racial equity breakout in this budget. Why?
ACTING DIRECTOR YOUNG: So thank you for that. I — you know, I think one way to accomplish things like racial equity, which is important — as you’ve pointed out, the President is taking historic action — is to ensure that we’re looking at implementing all of our programs with that in mind.
So, we have built that in. We have given clear direction to our agencies that they are to use that lens as they implement these programs. You know, we can’t wait on this, and this is why we have given clear instructions to agencies, with resources they have now, that they should be looking at racial equity with everything that they do. This is not something we should have to call out; this is something that should be pervasive in how the government does its business.
So you — you may not see a line item, but I think that’s more than appropriate with the way the President has asked his government to address these long, pervasive issues.
Q Hey, guys. It’s Justin Sink from Bloomberg. I’m wondering — just to make sure I’m reading this correctly — if you see the entirety of the Trump tax cuts expiring at their end but in the middle of your 10-year budget cycle.
And, you know, there’s been criticism that that would violate the President’s pledge not to raise taxes on those making under $400,000 a year. So how do you, kind of, grapple with that question?
ACTING DIRECTOR YOUNG: Hey, this is Shalanda. I’m happy to restate as many times as you allow me: The President has committed, continues to commit, will commit forever that individuals making under $400,000 a year will not have to pay a single dollar more in taxes.
The tax expiration issue that you brought up doesn’t happen until 2025. The President will use the time between now and that expiration in 2025 to work with Congress to continue reforming our tax code so that it can ask the wealthy to pay their fair share, raising the right amount of revenue, and protect the low- and middle-income families.
So, you know, absolutely we are tracking this, but what — the issue you raise is an issue in 2025, and this is a 2022 budget. And so, we are certainly aware and we’ll ensure that Congress keeps to the President’s pledge that we not raise taxes on those under $400,000.
MR. FRIEDLANDER: Great. And, Moderator, we have time for one more question.
Q Hi, this is Ben Popken with NBC News. So prices are rising and — does the budget anticipates that wage growth will outpace rising inflation, deterioration of consumer purchasing power, especially for lower-income households. And is there a time period before that becomes true? Thank you.
CHAIR ROUSE: So the budget does — the budget certainly does project that there’s going to be some short-term inflation, although we do expect it to settle back down to about 2 percent at an annual rate.
You know, we anticipate that the — that because of these policies, we’re going to have some GDP growth, which will be benefiting all Americans. We know that when you reach full employment — which we also anticipate that through these policies we’ll reach full employment — that that benefits all, as the President outlined and la- — leaned into in his speech yesterday.
And so we — we expect that everybody will benefit and that the economy will benefit from the productivity-enhancing investments that are embedded in this budget, funded from the revenue that would be largely from the wealthiest Americans to help pay for these investments.
MR. FRIEDLANDER: Great, thank you so much. And thanks, all of you, for joining us on a Friday.
A reminder that the contents of this call are on the record and embargoed until 1:30 p.m. Eastern time today.
And with that, hope you all have a great weekend. Thanks so much.
11:31 A.M. EDT
